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Technology Stocks : Netflix (NFLX) and the Streaming Wars -- Ignore unavailable to you. Want to Upgrade?

To: Dave who wrote (110)	9/9/2004 11:39:48 AM
From: Glenn Petersen	Read Replies (1) \| Respond to of 2280

I don't have an opinion on BBI but some of the participants on this thread will probably be interested in this article. I would hazard the guess, and it is just a guess, that BBI will remain under pressure until the spin off has been completed and the shares absorbed. latimes.com Viacom Shareholders Get Blockbuster Offer By Sallie Hofmeister Times Staff Writer September 9, 2004 Viacom Inc. gave its shareholders a generous financial incentive Wednesday to buy out its stake in Blockbuster Inc. — the latest sign of the flagging health of the video rental business. Viacom, which acquired Blockbuster in 1994 for $6.7 billion, said it would give shareholders a premium of as much as 19% for trading in Viacom shares for those of the video retailer. The entertainment giant could lose up to $1.2 billion on the deal, depending on the number of shares exchanged, the company said Wednesday in a regulatory filing. That's because of the difference between the value of the Viacom shares tendered and those of the Blockbuster stock they would be getting. In addition to owning CBS, MTV, Nickelodeon and Paramount Pictures, Viacom owns 81.5% of Blockbuster and plans to dispose of its entire stake in the exchange offer. Viacom disclosed plans to "split off" the video retail chain to its shareholders in February, after failed attempts to find a corporate buyer. At the time, Viacom took a $1.3-billion charge against its earnings because of the declining value of Blockbuster, which operates nearly 9,000 stores. As a result of the chain's uncertain future, analysts had expected Viacom to be forced to offer shareholders a sweetener to participate in the split off. Blockbuster has seen sales decline as a result of intensifying competition from discounters such as Wal-Mart Stores Inc. and Web-based services including Netflix Inc. Under the terms of the exchange offer, which will expire Oct. 5, Viacom shareholders can exchange each of its Class A and Class B shares for 5.15 Blockbuster common shares. Based on Blockbuster's $7.90 closing price Tuesday, Viacom shares are valued in the offer at $40.69 — a 17.6% premium over Viacom Class A shares' Tuesday closing price and a 19.2% premium over Viacom Class B shares' Tuesday closing price. Investors on Wednesday signaled that the deal favored Viacom. The company's shares closed Wednesday at $35.08, up 48 cents on the New York Stock Exchange. Blockbuster shares dropped 42 cents, to $7.48. To keep the effects of the Blockbuster separation from diluting Viacom's earnings, Viacom Chief Executive Sumner Redstone said he planned a huge buyback of additional outstanding Viacom shares after the exchange offer is completed. Viacom isn't allowed to buy back shares of its stock while the offer is pending, Redstone has said. Viacom will finance the buyback in part using $782 million in proceeds it reaped when Blockbuster paid its shareholders a $5 dividend in August. In all, Viacom could spend as much as $8 billion to buy back its shares, according to analysts.

To: Dave who wrote (110)	10/16/2004 12:34:18 AM
From: CFA	Read Replies (2) \| Respond to of 2280

I think that NFLX's price cut has more to do with Blockbuster than it has to do with Amazon. Apparently, a significant number of NFLX subscribers are giving Blockbuster's online offering a try. Also, if NFLX thought that lowering its price would stem the outflow, it thought wrong. Blockbuster, within 24 hours of NFLX's announcement, has responded by lowering its own price, again undercutting NFLX. Chalk this up to Blockbuster's newfound aggressiveness. On another note, it seems to me that a Blockbuster/Amazon partnership would be ideal here. Although Amazon has perfected the role of online merchant, it has no experience with rentals. At the same time, Blockbuster's website is lacking in features relative to Netflix's. Amazon has numerous partnerships in place (Toys R Us, Borders Books) whereby Amazon serves as the front-end (go to Amazon website to purchase item) while its partner takes care of the back-end (Toys R Us / Borders takes care of the actual distribution of items). Why not forge such a partnership here? The upside of all of this discounting is that I believe that we'll see a revival in movie renting. When movies cost $80 to purchase, almost nobody purchased movies. Once the price of movies dropped to $15 movie purchasing exploded and the studios made more money at the lower price. It could be the same with rentals. Prior to these unlimited plans, I never used to rent movies because I'm too cheap to pay $3.5 per rental. Now I'm signed up with Blockbuster's unlimited in-store plan, visit the store a few times per week, and rent 20+ movies per month for $25. Longer-term, the key to Blockbuster's success will be in-store / online integration. Once Blockbuster provides its customers with the ability to rent movies online, return them to a Blockbuster store, and pick up 2 new movies immediately while at the store, it will be hard for anyone--Netflix or Amazon--to compete with its value proposition. ----------------------------------- Herb Greenberg on 10/14/04: But the company's announcement that it plans to cut prices by 18 percent a mere four months after raising them by 10 percent -- to a price lower than it was before the increase -- while at the same time scotching plans to enter the United Kingdom all because of rumors Amazon is soon to become a competitor is mind-boggling. Companies don't just reverse themselves because a single competitor is entering the fray -- at least not good companies and certainly not in a business like online DVD rentals, where increased competition from the likes of Amazon seemed inevitable. Blaming the decision to suddenly reverse strategies on a competitor that hasn't even announced that it will become a competitor? That's like companies that blame their trouble on the weather. (Or, as Netflix did, blame lower DVD rentals on the Olympics, which if I recall weren't the ratings champions they were expected to be.) The reality is that signs of strain are starting to show up at Netflix, where churn last quarter was higher than expected. Netflix attributes the higher churn on its higher prices. But the high churn numbers also occurred during its first quarter to go head-to-head with Blockbuster's discounted service. marketwatch.com ----------------------------------- Herb Greenberg on 10/14/04: In response to my query -- and through a spokesman -- Blockbuster (BBI: news, chart, profile) CEO John Antioco said that Blockbuster has added more subscribers in a half a quarter than Netflix "added in its first year and a half of existence. And we added more net paid subscriptions in the first half a quarter than Netflix added for the entire quarter." "We are confident," he added, "that we will end the year after only four and half months with more subscribers than Netflix had after its first three and a half years." Where are the new customers coming from? According to Blockbuster's research, the spokesman says, 70 percent came from Netflix (NFLX: news, chart, profile). Antioco added, again through the spokesman, that "we are determined and convinced we will be the leader in the online rental space, no matter what it takes." marketwatch.com